Fed Profits

The Fed announced yesterday that it turned over $76.9 billion of its earnings to the Treasury (and the taxpayer) during 2011. This was near the record $79.3 billion transferred during 2010. It is about three times the amount transferred during more normal times. For example, the transfers averaged $21.5 billion from 2002 through 2005.

While total Fed earnings include fees for services like check clearing and wire transfers provided to depository institutions, the bulk of the earnings come from interest on loans and securities acquired as a by-product of its monetary policy. The sharp increase in recent years resulted from the expansion of the Fed’s balance sheet associated with so-called quantitative easing.

Past experience suggests that this announcement will do nothing to dispel the false notion that the Fed uses taxpayer funds in its operations rather than contributes to the pool of taxpayer funds. Its earnings contributions have made the fiscal situation less-worse than it otherwise would have been. That is a side benefit, of course, rather than a reason to expand its balance sheet. Read more.....